Business News

The New York Times Company Reports Increased Revenues and Reduced Operating Costs in 2010 Second-Quarter Results

Thursday 22. July 2010 - The New York Times Company announced today 2010 second-quarter results.

Total revenues increased 1.2 percent to $589.6 million in the second quarter of 2010 compared with the second quarter of 2009, an improvement from the first quarter 2010 decline of 3.2 percent compared with the first quarter of 2009.
Operating costs excluding depreciation, amortization and severance declined 3.7 percent in the second quarter of 2010 versus the second quarter of 2009. On a GAAP basis, the Company’s operating costs declined 4.3 percent in the second quarter of 2010 versus the second quarter of 2009.
Operating profit excluding depreciation, amortization, severance and a special item in 2009 grew 39.4 percent to $92.6 million in the second quarter of 2010 compared with $66.4 million in the second quarter of 2009. On a GAAP basis, operating profit more than doubled to $60.8 million in the second quarter of 2010 compared with $23.5 million in the second quarter of 2009.
Diluted earnings per share from continuing operations excluding severance and the special items discussed below more than doubled to $.18 per share in the second quarter of 2010 compared with $.08 in the same period of 2009. On a GAAP basis, the Company had diluted earnings per share from continuing operations of $.21 per share in the second quarter of 2010 compared with $.27 in the second quarter of 2009.
The Company continues to manage its liquidity, reducing its debt and capital lease obligations, net of cash and cash equivalents by approximately one third to $670 million from its balance at the beginning of 2009, even after making pension contributions totaling $87.5 million in the second quarter of 2010. The majority of the Company’s debt matures in 2015 or later.
“These positive results continued to build on the momentum of the past few quarters as the Company was able to increase revenues and decrease operating costs,” said Janet L. Robinson, president and chief executive officer, The New York Times Company. “In the second quarter, total revenues increased 1 percent, reversing the first quarter 2010 decline of 3 percent, as we experienced positive trending in both print and digital advertising revenues.
“Solid growth in digital advertising revenues, which rose 21 percent, offset a 6 percent decrease in print advertising, and advertising revenues ended the quarter roughly flat compared with the second quarter of last year. Online advertising revenues have become a larger part of our mix and made up 26 percent of the Company’s total advertising revenues in the 2010 second quarter, up from 22 percent in the same prior-year period.
“Based on the early part of the third quarter, third-quarter revenue trends for print advertising are expected to improve from the levels of the second quarter, while digital advertising is expected to trend in the mid to high teens. The low-single digit circulation revenue growth we experienced in the first part of 2010 is not expected to continue in the second half of the year, as we will be cycling past the June 2009 price increases at The New York Times and The Boston Globe and thus expect 3 to 5 percent declines in circulation revenues in the third quarter.
“The Company is well-positioned to thrive in the evolving media marketplace, thanks to the significant progress we are making in reinventing our enterprise. Despite an increasingly competitive environment and volatile economic conditions, we believe that by staying committed to our brand promise of high quality journalism that engages audiences with our content across multiple platforms, when and where they want it, we will ensure The New York Times Company remains a dominant force in the media landscape.”
Comparisons
All quarterly comparisons exclude the results of WQXR-FM, a New York City classical radio station, which was sold in the fourth quarter of 2009, and are reported as discontinued operations.
The second-quarter 2010 results from continuing operations included the following special item:
A $9.1 million ($5.2 million after tax or $.03 per share) gain, included within income from joint ventures, from the sale of 50 of the Company’s 750 units in New England Sports Ventures, LLC (NESV).
The second-quarter 2009 results from continuing operations included the following special items:
A $37.7 million ($.26 per share) tax benefit related to a change in estimate for income taxes in the first half of 2009.
A $9.3 million ($5.6 million after tax or $.04 per share) charge for a premium on the redemption of the Company’s $250.0 million of notes, which was completed in April 2009.
A $6.8 million ($3.9 million after tax or $.02 per share) charge for a pension withdrawal obligation under a multi-employer pension plan related to the closure of City & Suburban, the Company’s retail and newsstand distribution subsidiary, which was closed in early January 2009, as well as a curtailment charge resulting from freezing benefits under a Company-sponsored pension plan.
In addition to these special items, the Company had $1.4 million ($0.8 million after tax or $.00 per share) in severance costs in the second quarter of 2010 compared with $1.7 million ($1.0 million after tax or $.01 per share) in the second quarter of 2009.
Unless otherwise noted all comparisons are for the second quarter of 2010 to the second quarter of 2009. This release includes non-GAAP financial measures, and the exhibits include a discussion of management’s use of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures.
Second-Quarter Results from Continuing Operations
Revenues
Total revenues increased 1.2 percent to $589.6 million from $582.7 million. Advertising and other revenues were flat and circulation revenues rose 3.2 percent.
The increase in digital advertising revenues, which rose 21.2 percent, offset a 6.1 percent decrease in print advertising revenues.
Circulation revenues rose because of higher subscription and newsstand prices at The New York Times and The Boston Globe, offset in part by volume declines across the News Media Group.
Operating Costs
Operating costs decreased 4.3 percent to $528.8 million from $552.4 million. Depreciation and amortization decreased to $30.3 million from $34.4 million in the second quarter of 2009 primarily due to the accelerated depreciation expense recognized in the second quarter of 2009 for assets at the Billerica, Mass., printing facility.
Excluding depreciation, amortization and severance, operating costs were down 3.7 percent to $497.0 million from $516.3 million driven by a decline in newsprint expense and various other expense categories. Newsprint expense declined 15.1 percent, with 8.3 percent from lower consumption and 6.8 percent from lower pricing.
Second-Quarter Business Segment Results
News Media Group
Total News Media Group revenues were $555.9 million compared with $555.5 million. Advertising revenues declined 2.3 percent, circulation revenues rose 3.2 percent, and other revenues were on a par with last year.
Print advertising revenues were lower across the News Media Group resulting in a 6.1 percent decline. Digital advertising revenues grew 19.8 percent partially offsetting the print decline.
Circulation revenues rose because of higher subscription and newsstand prices at The New York Times and The Boston Globe, offset in part by volume declines across the News Media Group.
News Media Group operating costs decreased 5.0 percent to $501.5 million from $527.7 million. Excluding depreciation, amortization and severance, operating costs decreased 4.4 percent to $472.6 million from $494.3 million driven by a decline in newsprint expense and various other expense categories.
Operating profit for the News Media Group was $54.4 million in the second quarter of 2010 compared with $21.0 million in the second quarter of 2009. Excluding depreciation, amortization, severance and a special item in the second quarter of 2009, operating profit in the second quarter of 2010 was $83.3 million compared with $61.2 million, primarily due to lower operating costs.
About Group
About Group revenues increased 24.1 percent to $33.7 million from $27.1 million due to growth in display and cost-per-click advertising.
About Group operating costs increased 8.4 percent to $18.3 million from $16.9 million. Excluding depreciation, amortization and severance, operating costs increased 10.1 percent to $15.5 million from $14.1 million primarily because of higher compensation costs and marketing expenses.
Operating profit rose 50.0 percent to $15.3 million from $10.2 million. Excluding depreciation, amortization and severance, operating profit increased 39.2 percent to $18.2 million from $13.1 million, mainly due to higher advertising revenues.
Other Financial Data
Internet Revenues
Internet businesses include NYTimes.com, About.com, Boston.com and other Company Web sites. In the second quarter, total Internet revenues increased 20.5 percent to $94.3 million from $78.2 million, and Internet advertising revenues increased 21.2 percent to $82.4 million from $68.0 million. Internet advertising revenues at the News Media Group increased 19.8 percent to $50.4 million from $42.1 million mainly due to strong growth in national display advertising. In total, Internet businesses accounted for 16.0 percent of the Company’s revenues for the second quarter of 2010 versus 13.4 percent for the second quarter of 2009.
For the first half of 2010, the Company’s Internet revenues increased 18.0 percent to $184.6 million from $156.4 million in the same period in 2009, and Internet advertising revenues increased 19.8 percent to $162.4 million from $135.6 million. In total, Internet businesses accounted for 15.7 percent of the Company’s revenues for the first half of 2010 versus 13.1 percent for first half of 2009.
Joint Ventures
Income from joint ventures was $16.8 million compared with $8.4 million in the second quarter of 2009. The second quarter of 2010 included a $9.1 million pre-tax gain from the sale of 50 of the Company’s 750 units in NESV. Excluding the gain, income from joint ventures declined due to lower paper selling prices at both paper mills in which the Company has investments.
Following the sale, the Company owns a 16.57 percent interest in NESV. The Company intends to continue to explore the sale of its remaining interest in NESV, in whole or in parts.
Interest Expense-net
Interest expense, net decreased mainly as a result of lower average debt outstanding offset in part by higher interest rates on the Company’s debt.
Income Taxes
The Company’s effective income tax rate was 44.6 percent in the second quarter of 2010. The effective tax rate for the first half of 2010 was 53.4 percent, primarily because of a $10.9 million one-time tax charge for the reduction in future tax benefits for retiree health benefits resulting from the federal health care legislation enacted in the first quarter of 2010.
In the second quarter of 2009, the Company’s calculation of taxes resulted in a change in the estimate for the first half of 2009. The effect of the change in the second quarter of 2009 was the recognition of a $37.7 million tax benefit. The tax benefit for the first half of 2009 had an effective tax rate of 52.9 percent, primarily because of a favorable adjustment to reduce the Company’s reserve for uncertain tax positions.
Cash and Total Debt and Capital Lease Obligations
The following table details the maturities and carrying values of the Company’s debt and capital lease obligations, net of cash and cash equivalents as of June 27, 2010.
(in thousands)
2012 4.61% medium-term notes
$ 75,000
2015 5.0% notes and 14.053% notes
500,000
2019 Option to repurchase ownership interest in headquarters building
250,000
Total $ 825,000
Unamortized amounts (59,045 )
Carrying value of debt $ 765,955
Capital lease obligations 6,737
Total debt and capital lease obligations $ 772,692
Less:
Cash and cash equivalents
102,431
Debt and capital lease obligations, net of cash and cash equivalents $ 670,261
As of the end of the second quarter of 2010, excluding letters of credit, there were no outstanding borrowings under the Company’s $400.0 million revolving credit facility.
Capital Expenditures
Capital expenditures totaled approximately $6 million in the second quarter of 2010. Year-to-date capital expenditures totaled approximately $10 million.
Pension Contributions
In the second quarter of 2010, the Company made discretionary contributions of $87.5 million to certain of its Company-sponsored qualified pension plans. The Company may make additional discretionary contributions to its Company-sponsored qualified pension plans in 2010 depending on cash flows, pension asset performance, interest rates and other factors.
2010 Expectations
While the Company will remain diligent in managing its operating expenses, its year-over-year cost trends will become more challenging in the second half of the year, particularly in the third quarter, due to the impact of rising newsprint prices, the timing and level of variable compensation, the elimination of certain salary rollbacks, and increased promotional spending and other costs associated with the launch of the NYTimes.com pay model, while the Company also cycles past certain cost-saving initiatives in the third quarter of 2009. As a result, the Company expects higher year-over-year costs in the low- to mid-single digits in the third quarter of 2010, although it expects fourth-quarter costs to be comparable to the same period last year, despite significantly higher newsprint prices.
Newsprint prices have increased as the year has progressed, such that the Company believes its newsprint price variance will become unfavorable on a year-over-year basis beginning in the third quarter. Accordingly, the Company expects that higher newsprint prices will negatively affect operating expenses by approximately $25 million for the second half of 2010, exclusive of the favorable impact on operating expenses of lower consumption.
In addition, the Company expects the following on a pre-tax basis in 2010:
Depreciation and amortization: $120 to $125 million,
Capital expenditures: $45 to $55 million,
Interest expense, net: $85 to $90 million, and
Income from joint ventures: $5 to $10 million, excluding a gain of approximately $13 million (the Company’s share is approximately $10 million) from the sale of an asset at one of the paper mills in which the Company has an investment and a gain of approximately $9 million from the sale of a portion of the Company’s interest in NESV.
The Company also expects to record in the third quarter of 2010 an approximate $16 million charge for the write-down of assets at The Boston Globe’s printing facility in Billerica, Mass., which was consolidated into the Boston, Mass., printing facility in the second quarter of last year. After exploring different opportunities, the Company determined in the third quarter of 2010 that the majority of these assets would be sold.